There are many good reasons to work with an executive recruiter or headhunter (click here). Be careful though as barriers of entry are low, the title is not protected (anyone can call himself “headhunter” tomorrow, print business cards and run this business) and quality is therefore very heterogenic.
In short: There are many dos and don’ts when working with us. One which I found little on my research, however, is the question if you should you pay a retainer to an executive recruiter or work on a contingency basis.
Read on, the explanation might surprise you.
There are basically three ways to work with an executive search firm or recruitment agency:
- On a success fee/ contingency/ “no cure, no pay” basis without exclusivity which means what it says: unless we find a solution for you (=you hire our candidate), you don’t owe us anything. Furthermore, our competitors work on the same assignment. Commitment from both sides is minimal
- On a success fee/ contingency/ “no cure, no pay” basis with exclusivity: things look slightly better for you and us. Due to the exclusively clause, client and recruiter show that they plan to go to the end with this. If they do and the candidate has signed the work contract, the recruiter has earned his fee
- Retained/ “fully retained” which means that you pay in typically three (sometimes two) installments, the first one when you give us the assignment, the next one when we present our short-list of candidates/ after XYZ days (both models coexist) and the remainder when the chosen candidate has signed the work contract with you. This form is the normal approach for the recruitment of senior or very complex profiles as they may require in-depth, tailor-made work from the executive search firm
What is the impact of these three distinct fee models – for YOU?
Whenever two parties make a deal, the decision will be based on one of the four buying signals which are 1) quality (Mercedes or Volkswagen?), 2) service (five or two star hotel?), 3) speed of execution (a book at my local bookstore now or 10% cheaper on the internet, delivered in two days) and 4) price (no example for you, as a client who chooses based on price only is a sad story…).
How do these four points link to the fee structure of an executive search firm? Let’s have another look at the three fee models and bring them together with the buying signals I have outlined here above:
- Success fee/ contingency/ “no cure, no pay” basis without exclusivity: the recruiter does not earn anything before the candidate has signed a work contract with the hiring company. This does not only mean that he won’t earn his fee if he does not present the right candidate. In addition to that, external competitors, internal candidates, a strategy change/ hiring freeze or else as well as unsolicited applications might get in the way. Time is against the recruiter and the most important criteria for him will be speed as there are too many unforeseen circumstances that could spoil the deal. Though high speed can be a good thing (in the 350 recruitments I have personally run, 349 or so clients told me “we need someone by last Monday”), quality and service will be compromised if you choose this way to work with us. The recruiter knows that he probably won’t “make the placement” anyway: the “fill-ratio” for this model is 20%. You will therefore get the candidates that are currently available but not always the best solution for your problem
- Success fee/ contingency/ “no cure, no pay” basis with exclusivity: the recruiter has eliminated one in minimum four enemies: his competitors. Commitment from both sides is be higher and the recruiter can have realistic hopes to earn his fee. He is, however, not immune against internal candidates, a strategy change/ hiring freeze or else as well as unsolicited applications. Speed will still win over quality or service: a candidate who is second best but presented today is still better than a potential A candidate we will only meet next week. Fill-ratio is approx. 80% if you work with a professional, ethical recruiter who understands his job
- Retained/ “fully retained”: This form of partnership offers the highest commitment from both sides. A recruiter who works on a retained basis is paid one part of his fee upfront and has secured his running costs. Whether he presents his short-list today or in two weeks will not have a huge impact as he will most likely get his fee. Quality and service will be therefore the most important criteria for the selection of candidates and neither one will be compromised for speed. As a client, you will normally get access to a broader pool of candidates as we will not only consider CVs in the database or applications from candidates currently on search (which is not always the best moment to change, see “The Five Phases Of The Job Life Cycle”). We will build a cartography of target companies we have defined together and approach these in a systematical and structured way. As a consequence, many of our candidates are exclusively listed with us, not actively on job search and you could never meet them without us. Our fill-ratio can be up to 99% (I have not accepted any assignment I did not fill since I joined my current employer in April 2011) if nothing unforeseen happens
Thanks for reading to the end and yes, this was a commercial text in a way. But I also wrote it to explain that what may seem good to a customer at first sight (=take no risk and do not pay anything upfront) will not ensure that you get access to the best talent available. On the contrary, you even run the risk of having a mediocre staff structure mid-term. And you need top talent to achieve your budget, right…?
Ask yourself which of the four buying signals quality, service, speed or price will be the one you build your future team on and decide yourself. And if you opt for number 3, we are there for you!
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